This is the first of three articles warning sellers and buyers about the tips realtors use to get your money and to help you avoid being robbed by your realtor.
There are at least three main techniques commonly used by real estate agents that sellers should watch out for: the windward sign, the slash, and the slash.
1. The inscription of suction cups
The basis for the success of any real estate agency is obviously to encourage the maximum number of sellers to sign with that agency rather than with their many competitors who are generally alike. Research has shown time and time again that most of us believe our homes are worth more than they actually are. Because we have lived in them and decorated them in a way that suits us, we are often emotionally attached to them. We probably think our bold color scheme, our modern open-plan living space, our fireplace is' quirky 'feature' & # 39; or our 'designer & # 39; & # 39; bathroom live up to good taste and functionality and would appeal to any potential buyer. But looking at our beloved homes, the first thought of many buyers may be how they can gut the place and replace our miserable decorations with something better suited to their tastes and lifestyle.
This can be a problem for real estate agents. If they are brutally honest with us about the (often insufficient) attractiveness of our house and give us a realistic sale price, we will probably get quite cranky and assign our business to another more glowing agent on our tastes and more optimistic. on how much we can sell. So, when promoting our business as sellers, most agents will flatter us by renting out our house, try to probe us for the value that we feel our property is worth and then claim they can easily reach or exceed our price expectations. This often causes them to overvalue our homes. But the agent knows that once we sign up with them, find a new home, have already moved psychologically into our new home, and are under financial pressure to sell our property existing, it is easy to force us to accept a price much lower than us. had initially been made to wait.
Besides overvaluation, another common tactic that agents use to get us to hire them is the phantom buyer. By showing them around our home, they will likely tell us that they have recently been contacted by one or more buyers who are looking for a property like ours. To put even more pressure on us, the agent can phone their office in our presence, supposedly to verify that these buyers are still in the market. Invariably his office will confirm that there are buses full of eager buyers all eager to see our property. The agent & # 39; s message will be clear – if we don & # 39; t sign up with them quickly, we will miss the chance for a quick sale at a good price. Within days of our signing, when the promised buyers seem to have mysteriously vanished into thin air, it's easy for the agent to tell us that the buyers have found somewhere else or have changed their minds or for the sake of it. agent to give us another rooster and bull story to explain the surprisingly rapid demise of buyers.
2. The price slash
Chances are, your agent will have overvalued your property in order to get you to sign with them. So unless the market is abnormally buoyant or they are lucky enough to find a buyer with more money than sense, once they start actively marketing your property , they'll probably have to soften you up to the prospect of accepting a lower price. which they originally suggested.
Many sellers assume that it is in the agent's best interest to get the best price possible. But that's just not the case. Suppose you have a single agency contract with a 1.5% sales charge. If you are looking for eg £ 285,000 the estate agent will earn £ 4,275 and the individual agent maybe 10% of that – £ 427. If the agent can convince you to accept an offer of £ 265,000, the agency will pocket £ 3,975 and the agent £ 397. So while you deposit £ 20,000 the agency only loses £ 300 and the agent £ 30. As the agent and agency will be under pressure to meet their sales targets every week or month, it is often better for them to push you to sell for a lower price than to wait without ceases to have a buyer bid the full price – £ 20,000, A drop of £ 30,000 or even £ 50,000 in your price will have relatively little effect on their commission. Some smart agents may even get you to accept a flat fee of 1.5% of the asking price, so when they later convince you to take a lower offer, their commission remains gloriously intact.
Getting your price down is normally relatively easy. While the agent might originally have been very complimentary about your home, now he's telling you that several buyers have seen the property and not all of the reviews have been as good. positive that they had expected. Excellent transport links can suddenly become a source of concern due to excessive traffic and congestion; your large garden, which had been such a big selling point, might pose a problem for the type of busy young professional couples who would be in the market for a home like yours; your very creative color scheme, which the agent had admired so much, might well have put off buyers looking for a more neutral decor etc. The agent may even tell you that right after you signed up they unexpectedly got several other similar properties on the agency books and they all sold out incredibly quickly as they were over '' competitively priced & # 39; '. Or the agent may claim that there were a few offers for your home that were well below the asking price. But regardless of the tactic used, most sellers can quickly be persuaded to lower their price to the level the agent always knew they would get.
The ideal situation for the agent is when a client signs a single agency agreement giving them exclusive rights to sell the property for an agreed period. This puts less pressure on the agent to sell the property because, as long as he changes it during the contract period, he will receive his commission. Less beneficial to the agent is a multiple agency arrangement where the seller places their property with multiple agents. This sets up a race between agencies over who gets the sale and the commission, which means multiple agencies can do a lot of the work but fail to make money – which is not something. something that will probably be appreciated by the agency manager. In a multiple agency situation, two common scenarios can develop. You may find that each agent will do less work to sell your property because they know that it is likely that another agent will get the sale and the commission. They therefore concentrate their efforts on properties where they have an exclusive agency and try to push buyers towards those properties. Or there may be a mad rush as each agent tries to get you to accept the offers they receive. In this case, they may feel an even greater need to convince you to accept a price reduction and you will find yourself bombarded with calls from agents telling you all the good buyers they are. have ready to take your property if only you would show a few. flexibility on the price. It is only later, once you have accepted an offer and taken your property away from other agents, that you find out that the buyer was not as strong as what had been suggested – he may be in a chain trying to sell his property, or may not have the financing fully organized or may not be able to complete as quickly as you thought. But by then it's usually too late to change your mind and go back to other agents.
3. The slash-and-grab
The most financially damaging situation for a seller is when an agent decides he can make a lot of money for himself by getting you to sell your property at an attractively low price to someone. one who is actually one of the agent's business contacts, friends or family. members. This reduction in your price and foreclosure of your home can be quite straightforward, such as when the agent manages to convince you to take a low offer from one of his associates and you are asked to accept a low offer from one of his associates and you will not be able to do so. they then resell your property for a healthy profit, the agent maybe £ 10,000 to £ 20,000 or more for a few hours of work.
A more sophisticated version of this scam occurs when you have an apartment or a house that needs to be modernized or a house that can be divided into apartments. Here the agent can have a relationship with a developer. The deal will normally be that the agent alerts the developer of the opportunity, encourages you to accept the developer's offer (while still claiming your home is going to a private buyer), and then gets a leap from the developer. This bung is known in the trade as the “ drink & # 39; & # 39; and will normally be between £ 5,000 and £ 10,000 per trade, depending on the profit made by the developer. In order to encourage you to sell below market value, the agent may turn down offers to genuine buyers or cause friends to make low offers to drive you down in price.
The internet has made slash-and-grab a little more difficult by providing sellers with easy access to pricing information that similar properties have obtained. However, the slash-and-grab works an absolute treat with older, perhaps more vulnerable sellers who may downsize – sell a larger family home and move into a bungalow or apartment after their kids grow up. and left the house. These sellers are easy targets because if they have lived in a house for many years they may have bought it for five figures – maybe £ 40,000 or £ 50,000 . So, when they get a six-figure offer like £ 350,000, they will believe that they are already making a huge profit and might feel uncomfortable about the idea of a deal. do more. In addition, often these sellers will generally not have thought about the value of their properties if they are converted into apartments and therefore can be fooled by the agent by simply comparing the price offered to that paid for to buy. 39; other similar family homes, which will usually be considerably less in value when converted into apartments. This scam hit the headlines in 2009 when an agent convinced a seller to accept £ 2.9million for a property that had a development value of almost £ 10million sterling. However, it happens to ordinary people all the time – on my street a retired couple sold their 3 story patio end house for around £ 385,000. Unbeknownst to the sellers, it was bought by a partner in the estate agency who had handled the sale and sold as three stand-alone apartments for almost £ 750,000 a few months later, after probably less than £ 50,000 spent on conversion.